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Economy in Brief

U.S. Construction Spending Drop Largest Since 2001
by Tom Moeller September 5, 2006

In July, the value of construction put in place dropped 1.2% following a little revised 0.4% gain during June. Consensus expectations had been for a 0.1% decline. The m/m drop was the largest since July 2001 and lowered the opening level for 3Q spending 1.0% below the 2Q average.

The 2.0% July drop in residential building activity was an accelerated rate of decline versus the 1.0% to 1.6% range of monthly shortfalls during the prior three months. New single family building collapsed 3.0% (-6.0% y/y) and the July level was down 9.9% from the peak in February. Moving in the other direction, spending on multi-family projects rose 1.6% (14.9% y/y) but the value of spending on improvements fell 0.8% (-0.2% y/y).

During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP. During April and May the value of residential building activity was down 1.3% from the 1Q average.

Nonresidential building ticked up 0.3% following strong monthly gains which have now lifted spending by roughly one quarter since the low last year. Office construction surged 5.5% (29.3% y/y) while multi-retail building increased another 3.0% (38.6% y/y). Building by the factory sector fell 3.1% (+26.3% y/y).

Public construction spending fell 0.7%. Construction activity on highways & streets, nearly one third of the value of public construction spending, fell by 0.6% (+18.2% y/y), the second consecutive monthly decline.

These more detailed categories represent the Census Bureau’s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

Recent Trends in Homeownership from the Federal Reserve Bank of St. Louis can be found here.

Construction Put-in-place July June Y/Y 2005 2004 2003
Total -1.2% 0.4% 5.1% 10.7% 11.5% 5.6%
Private -1.3% 0.4% 4.0% 12.0% 14.3% 6.4%
  Residential -2.0% -1.0% 3.0% 13.9% 18.6% 12.8%
  Nonresidential 0.3% 3.7% 22.0% 7.4% 5.3% -4.8%
Public -0.7% 0.4% 9.5% 6.2% 2.8% 2.9%
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